Allegiant Travel CO

Previous wording

The following discussion and analysis presents factors that had a material effect on our results of operations during the three and six months ended June 30, 2024 and 2023. Also discussed is our financial position as of June 30, 2024 and December 31, 2023. You should read this discussion in conjunction with our unaudited consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q and our consolidated financial statements appearing in our annual report on Form 10-K for the year ended December 31, 2023. This discussion and analysis contains forward-looking statements. Please refer to the section below entitled “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Current wording

The following discussion and analysis presents factors that had a material effect on our results of operations during the three and nine months ended September 30, 2024 and 2023. Also discussed is our financial position as of September 30, 2024 and December 31, 2023. You should read this discussion in conjunction with our unaudited consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q and our consolidated financial statements appearing in our annual report on Form 10-K for the year ended December 31, 2023. This discussion and analysis contains forward-looking statements. Please refer to the section below entitled “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Previous wording

•As of June 30, 2024, we had 525 thousand total Allegiant Allways Rewards Visa cardholders

Current wording

•As of September 30, 2024, we had 535 thousand total Allegiant Allways Rewards Visa cardholders

Previous wording

•Enrolled 552 thousand new Allways Rewards members during the second quarter 2024

Current wording

•Enrolled 448 thousand new Allways Rewards members during the third quarter

Previous wording

As of June 30, 2024, we are a party to forward purchase agreements for 50 aircraft with four deliveries currently expected in 2024, and the remaining 46 aircraft are expected to be delivered in 2025 and later years. The timing of these deliveries is based on management's best estimates at the current time and differs from the contract in place. The delivery schedule has been and will continue to be impacted by delay notices from Boeing and continuing regulatory reviews of Boeing.

Current wording

As of September 30, 2024, we are a party to forward purchase agreements for 49 aircraft with one delivery currently expected in 2024, and the remaining 48 aircraft are expected to be delivered in 2025 and later years. The timing of these deliveries is based on management's best estimates at the current time and differs from the contract in place. The delivery schedule has been and will continue to be impacted by delay notices from Boeing, continuing regulatory reviews of Boeing, supply chain constraints, and labor issues at Boeing. We received delivery of our first 737 MAX aircraft in September 2024 and have since placed it into revenue service in October 2024.

Previous wording

Due to the heavy maintenance needs on certain aging Airbus airframes and capacity constraints at the maintenance, repair, and overhaul contractors, we reevaluated our fleet plan and identified 21 aging airframes for early retirement to coincide with the delivery schedule for our 737 MAX aircraft provided in an amendment to our Boeing purchase agreement signed in September 2023. Two airframes were retired in 2023 and two airframes were retired in first quarter 2024. The remaining airframes are to be retired between August 2024 and December 2026. The timing of the retirements has been coordinated with the revised delivery schedule for the 737 MAX aircraft to provide us with opportunities for fleet renewal and replacement. The accelerated depreciation on these airframes resulting from a change in the estimated useful life is recorded as a special charge of $9.3 million during second quarter 2024. We plan to retain the engines associated with these airframes in our spare engine pool and use the substantial remaining life on these engines to offset future overhaul costs.

Current wording

Due to the heavy maintenance needs on certain aging Airbus airframes and capacity constraints at the maintenance, repair, and overhaul contractors, we reevaluated our fleet plan and identified 21 aging airframes for early retirement to coincide with the delivery schedule for our 737 MAX aircraft provided in an amendment to our Boeing purchase agreement signed in September 2023. Two airframes were retired in 2023 and six airframes were retired during the first nine months of 2024. The remaining airframes are to be retired between December 2024 and December 2026. The timing of the retirements was coordinated with the revised delivery schedule for the 737 MAX aircraft to provide us with opportunities for fleet renewal and replacement. The accelerated depreciation on these airframes resulting from a change in the estimated useful life is being recorded as a special charge, of which $4.2 million was recorded during third quarter 2024. We plan to retain the engines associated with these airframes in our spare engine pool and use the substantial remaining life on these engines to offset future overhaul costs.

Previous wording

As of June 30, 2024, we were selling 550 routes versus 555 as of the same date in 2023. Growth of our network has been impacted by challenges created by delayed aircraft deliveries, the uncertainty of our pilot staffing levels and other factors. We have identified over 1,400 incremental domestic nonstop routes as opportunities for future network growth, of which over 77 percent currently have no non-stop service. Our total active number of origination cities and leisure destinations were 90 and 34, respectively, as of June 30, 2024.

Current wording

As of September 30, 2024, we were selling 542 routes versus 549 as of the same date in 2023. Growth of our network in the past two years has been impacted by challenges created by delayed aircraft deliveries, the uncertainty of our pilot staffing levels and other factors. Network growth will continue to be affected by further aircraft delivery delays, aircraft in heavy maintenance and airport construction and disruption. We have identified over 1,400 incremental domestic nonstop routes as opportunities for future network growth, of which over 77 percent currently have no non-stop service. Our total active number of origination cities and leisure destinations were 88 and 34, respectively, as of September 30, 2024.

Previous wording

The cost per gallon of fuel began to increase significantly in 2021, and the increases were exacerbated by the geopolitical impact of the war in Ukraine. The average fuel cost per gallon increased 5.2 percent in second quarter 2024 compared to the same period in 2023 and remained 40.1 percent higher than in second quarter 2021. We expect high fuel costs to continue impacting our total costs and operating results.

Current wording

The cost per gallon of fuel began to increase significantly in 2021, and the increases were exacerbated by the geopolitical impact of the war in Ukraine. Although the average fuel cost per gallon decreased 12.9 percent in third quarter 2024 compared to the same period in 2023, fuel cost per gallon for the quarter remained 23.4 percent higher than in full year 2019. We expect high fuel costs to continue impacting our total costs and operating results.

Previous wording

We are in the midst of an effort to increase aircraft utilization back to 2019 levels by adding service to our schedule in our most profitable peak periods. By way of example, our aircraft utilization rate was 9.7 hours per aircraft in June 2019 and even with an approximate one-half hour increase over June 2023, utilization was only 7.8 hours per aircraft in June 2024. We currently expect to achieve this goal during 2025, but this effort is subject to various risks, some of which may not be under our control.

Current wording

We are in the midst of an effort to increase aircraft utilization back to 2019 levels by adding service to our schedule in our most profitable peak periods. By way of example, our aircraft utilization rate was 9.8 hours per aircraft in July 2019 compared to 7.7 hours per aircraft in July 2024. We have made progress toward this goal in 2024 and currently expect to achieve this goal during 2025, but this effort is subject to various risks, some of which may not be under our control.

Previous wording

We have signed an agreement and amendments with The Boeing Company to purchase 50 newly manufactured 737 MAX aircraft with options to purchase up to an additional 80 737 MAX aircraft. We believe this new aircraft purchase is complementary with our low-cost strategy based on our intent to retain ownership of the aircraft, the longer useful life for depreciation purposes, and expected fuel savings and operational reliability from the use of these new aircraft.

Current wording

We have signed an agreement and amendments with The Boeing Company to purchase 50 newly manufactured 737 MAX aircraft with options to purchase up to an additional 80 737 MAX aircraft. We took delivery of our first MAX aircraft in September 2024, with the aircraft entering revenue service in October 2024. We believe this new aircraft purchase is complementary with our low-cost strategy based on our intent to retain ownership of the aircraft, the longer useful life for depreciation purposes, and expected fuel savings and operational reliability from the use of these new aircraft.

Previous wording

In the interest of increased quality control at Boeing and its suppliers, the Federal Aviation Administration (FAA) has indicated aircraft production rates will be capped until they are satisfied with Boeing's quality practices. These factors and other delays in Boeing obtaining needed regulatory approvals could delay deliveries to us even further than management's current expectations. Although the contract provides for more deliveries, we do not expect more than four aircraft to be delivered in 2024. Continuing delays in aircraft deliveries will impact our ability to schedule additional growth into 2025.

Current wording

In the interest of increased quality control at Boeing and its suppliers, the Federal Aviation Administration (FAA) has indicated aircraft production rates will be capped until they are satisfied with Boeing's quality practices. These factors, other delays in Boeing obtaining needed regulatory approvals, and labor actions by Boeing machinists could delay deliveries to us even further than management's current expectations. Although the contract provides for more deliveries, at this time, we do not expect more than one additional aircraft to be delivered in 2024. Continuing delays in aircraft deliveries will impact our ability to schedule additional growth into 2025 and beyond.

Previous wording

During 2023, we converted to the Navitaire reservation system to replace our legacy home-grown system. While we expect incremental passenger revenue once this system is fully implemented, we suffered some per passenger air ancillary revenue degradation (in the area of bundled ancillary products in particular) as certain functionality was unavailable during the transition. We are devoting resources to the transition issues and currently expect to regain the lost per passenger revenue and achieve some of the incremental per passenger revenue in 2025.

Current wording

During 2023, we converted to the Navitaire reservation system to replace our legacy home-grown system. While we expect incremental passenger revenue once this system is fully implemented, we suffered some per passenger air ancillary revenue degradation (in the area of bundled ancillary products in particular) as certain functionality was unavailable during the transition. We restored functionality around one of our bundled product offerings in late third quarter 2024 and will continue to devote resources to the transition issues. We currently expect to regain the lost per passenger revenue and begin to achieve some of the incremental per passenger revenue in 2025.

Previous wording

The collective bargaining agreement with our pilots is currently amendable. We and the International Brotherhood of Teamsters ("IBT”) jointly requested the mediation services of the National Mediation Board ("NMB") in January 2023 to assist with the negotiations. The mediation process with the NMB is continuing with new union negotiators and leadership, with negotiation sessions currently scheduled through October 2024.

Current wording

The collective bargaining agreement with our pilots is currently amendable. We and the International Brotherhood of Teamsters ("IBT”) jointly requested the mediation services of the National Mediation Board ("NMB") in January 2023 to assist with the negotiations. The mediation process with the NMB is continuing with new union negotiators and leadership.

Previous wording

Separately from the ongoing collective bargaining agreement negotiations, to address retention and pilot pay issues and increase pilot staffing levels, effective in May 2023, we began recognizing a retention bonus for pilots who continue employment with us until a new labor agreement is approved. The amount being accrued is 35 percent of current hourly pay rates, except for our first year first officers for whom the percentage is 82 percent, in each case, calculated at a minimum of 85 pay credit hours per month. The IBT concurred with this approach. Our implementation of the retention bonus successfully allowed us to effectively increase pay rates for our pilot team members (by way of the accrual of the retention bonus), add pilots through hiring and significantly slow attrition.

Current wording

Separately from the ongoing collective bargaining agreement negotiations, to address retention and pilot pay issues and increase pilot staffing levels, effective in May 2023, we began accruing a retention bonus, with IBT's agreement, for pilots who continue employment with us until a new labor agreement is approved. The amount being accrued is 35 percent of current hourly pay rates, except for our first year first officers for whom the percentage is 82 percent, in each case, calculated at a minimum of 85 pay credit hours per month. Our implementation of the retention bonus has allowed us to effectively increase pay rates for our pilot team members (by way of the accrual of the retention bonus), add pilots through hiring and significantly slow attrition.

Previous wording

For the three months ended June 30, 2024, we recorded estimated pilot retention bonus accruals of $23.7 million bringing the total accrual to $100.6 million at period end, including the related payroll taxes. The bonus will be paid to all pilots remaining employed with us upon ratification of a new collective bargaining agreement.

Current wording

For the three months ended September 30, 2024, we recorded estimated pilot retention bonus accruals of $23.7 million bringing the total accrual to $124.3 million at period end, including the related payroll taxes. The bonus will be paid to all pilots remaining employed with us after ratification of a new collective bargaining agreement.

Previous wording

Sunseeker Resort at Charlotte Harbor opened in December 2023. As with many new hotels or resorts, Sunseeker's booking and occupancy rates are lower than more established properties. Despite strong performance by our food and beverage offerings, we expect Sunseeker to incur losses in its first year of operations. Our customer reviews to date have been positive and we hope to build on that favorable customer sentiment to achieve better financial performance of the Resort in the future. We have engaged experienced hospitality advisors to identify areas for improvement in an effort to seek to maximize the value of this asset and explore strategic alternatives.

Current wording

Sunseeker Resort at Charlotte Harbor opened in December 2023. As with many new hotels or resorts, Sunseeker's booking and occupancy rates are lower than more established properties. In addition, occupancy has been compromised by three major hurricanes impacting the area in summer and fall 2024. Despite strong performance by our food and beverage offerings, Sunseeker will incur significant losses in its first year of operations. Our customer reviews continue to be positive and we hope to build on that favorable customer sentiment to achieve better financial performance of the Resort in the future. We have engaged experienced hospitality advisors to identify areas for improvement in an effort to seek to optimize the value of this asset and evaluate strategic alternatives with potential partners.

Previous wording

We have established ESG goals in the areas of environmental, social and governance. We will report on our progress toward meeting those goals within our annual sustainability reports.

Current wording

We have established ESG goals in the areas of environmental, social and governance. We will report on our progress toward meeting those goals within our annual sustainability reports. Our 2023 Sustainability Report was recently published and can be viewed on our investor relations website.

Previous wording

Third party products revenue. Third party products revenue for second quarter 2024 increased 28.4 percent compared to second quarter 2023. The increase from 2023 is primarily the result of a 41.7 percent increase in the marketing component of co-brand credit card revenues and $2.1 million of revenue from a new travel insurance product implemented during first quarter 2024.

Current wording

Third party products revenue. Third party products revenue for third quarter 2024 increased $8.5 million or 27.4 percent compared to third quarter 2023. The increase from 2023 is primarily driven by a 29.7 percent increase in the marketing component of co-brand credit card revenues and $2.5 million of revenue from a new travel insurance product implemented during first quarter 2024. In addition, third party hotel revenues declined by 20.0 percent from third quarter 2023 on a 16.2 percent decline in rooms booked. Car rental revenue increased by 6.7 percent over third quarter 2023 despite a 4.0 percent decrease in rental car days sold.

Previous wording

Fixed fee contract revenue. Fixed fee contract revenue for second quarter 2024 increased 50.7 percent compared to the same period in 2023 on a 51.1 percent increase in fixed fee departures as the result of strong performance and growth in corporate and military charters and other sports flying.

Current wording

Fixed fee contract revenue. Fixed fee contract revenue for third quarter 2024 increased by $2.8 million or 15.9 percent compared to the same period in 2023. This growth was driven by an 8.2 percent increase in fixed fee departures and a 7.1 percent increase in revenue per departure. Increases in flying were evenly spread across military, ad hoc and vacation charters.

Previous wording

Operating CASM, excluding fuel, airline special charges, and Sunseeker Resort activity. Operating CASM, excluding fuel, airline special charges and Sunseeker Resort activity ("CASM-ex"), increased by 5.6 percent to 8.23 ¢ for second quarter 2024 from 7.79 ¢ in second quarter 2023. The CASM-ex increase is primarily attributable to a 12.8 percent or $22.5 million increase in airline salaries and benefits expense in second quarter 2024 over second quarter 2023 (for the reasons described in the expense line item discussion below). This increase was on relatively flat capacity (a decrease of 0.8 percent) as we continue to manage capacity to meet demand while navigating other constraints to airline growth.

Current wording

Operating CASM, excluding fuel, airline special charges, and Sunseeker Resort activity. Operating CASM, excluding fuel, airline special charges and Sunseeker Resort activity ("CASM-ex"), increased by 4.7 percent to 8.89 ¢ for third quarter 2024 from 8.49 ¢ in third quarter 2023. The CASM-ex increase is primarily attributable to a 15.1 percent, or $24.1 million, increase in airline salaries and benefits expense in third quarter 2024 over third quarter 2023 (for the reasons described in the expense line item discussion below). This increase was on relatively flat capacity as we continue to incur significant labor costs for pilots trained to fly our Boeing 737 MAX aircraft while the aircraft deliveries have been delayed.

Previous wording

Salaries and benefits expense. Salaries and benefits expense increased $32.8 million, or 18.5 percent, in second quarter 2024 compared to second quarter 2023. Higher salaries and benefits expense was primarily driven by a 10.2 percent increase in airline full time equivalent employees (including a 25.5 percent increase in the number of pilots employed since June 30, 2023) and increased crew pay. Increased crew pay reflects the impact of a $23.7 million accrual for pilot retention bonuses during second quarter 2024 which exceeds the second quarter 2023 accrual by $11.9 million, and a new collective bargaining agreement with our flight attendants that includes wage increases effective April 2024. The accrued pilot retention bonus is payable after ratification of a new collective bargaining agreement with this work group. The grand opening of Sunseeker Resort in December 2023 further drove the increase by adding nearly 900 Resort team members and an increase of $10.3 million in salaries and benefits expense in second quarter 2024.

Current wording

Salaries and benefits expense. Salaries and benefits expense increased $32.3 million, or 19.8 percent, in third quarter 2024 compared to third quarter 2023. Higher salaries and benefits expense was primarily driven by a 4.5 percent increase in airline full time equivalent employees (including a 21.9 percent increase in the number of pilots employed since September 30, 2023) and increased crew pay. Increased crew pay reflects the impact of a $23.7 million accrual for pilot retention bonuses during third quarter 2024, which exceeds the third quarter 2023 accrual by $5.0 million due to the higher number of pilots, and a new collective bargaining agreement with our flight attendants that includes wage increases effective April 2024. The accrued pilot retention bonus is payable after ratification of a new collective bargaining agreement with this work group. The opening of Sunseeker Resort in December 2023 further drove the increase by adding nearly 600 Resort team members since September 30, 2023 and an increase of $8.2 million in Sunseeker salaries and benefits expense in third quarter 2024.

Previous wording

Aircraft fuel expense. Aircraft fuel expense increased $7.4 million, or 4.6 percent, for second quarter 2024 compared to second quarter 2023. This is primarily due to a 5.2 percent increase in average fuel cost per gallon, offset by a 0.6 percent decrease in fuel gallons consumed from a 0.8 percent decrease in total available seat miles.

Current wording

Aircraft fuel expense. Aircraft fuel expense decreased $19.6 million, or 11.7 percent, for third quarter 2024 compared to third quarter 2023. This is primarily due to a 12.9 percent decrease in average fuel cost per gallon offset by a 1.6 percent increase in fuel gallons consumed from a 1.5 percent increase in total available seat miles.

Previous wording

Depreciation and amortization expense. Depreciation and amortization expense for second quarter 2024 increased by $11.4 million or 21.2 percent compared to second quarter 2023. The increase is primarily related to $6.0 million of depreciation expense related to the Sunseeker Resort, a $2.5 million increase in heavy maintenance amortization, and an increase of $2.0 million in capitalized software depreciation related to new IT systems placed in service beginning in the second half of 2023.

Current wording

Depreciation and amortization expense. Depreciation and amortization expense for third quarter 2024 increased by $8.1 million or 14.5 percent compared to third quarter 2023. The increase is primarily attributed to $7.8 million of depreciation expense related to the Sunseeker Resort, which held its grand opening in December 2023. The remaining change includes an increase in deferred heavy maintenance amortization offset by a decrease in aircraft depreciation as nine airframes were retired since the prior year quarter.

Previous wording

Maintenance and repairs expense. Maintenance and repairs expense for second quarter 2024 decreased $2.9 million, or 8.6 percent, compared to second quarter 2023, due to stabilized staffing which resulted in decreased outsourced labor expenses coupled with a decrease in rotable repairs. On a per ASM basis, maintenance and repairs expense decreased 9.0 percent year over year.

Current wording

Maintenance and repairs expense. Maintenance and repairs expense for third quarter 2024 decreased $5.2 million, or 14.7 percent, compared to third quarter 2023, due to decreases in rotable repairs and decreased outsourced labor expenses as we have been able to stabilize internal staffing.

Previous wording

Other operating expense. Other operating expense increased $2.5 million or 7.7 percent in second quarter 2024 compared to second quarter 2023. The increase was driven by an $8.1 million increase in Sunseeker Resort operating expenses consisting of $2.4 million cost of sales (primarily food and beverage cost), $2.2 million insurance, $0.7 million property taxes, and other general and administrative expenses, and incremental software licenses, training, and support related to new IT systems. These increases were offset in part by gains on the sale of property and equipment.

Current wording

Other operating expense. Other operating expense increased $11.1 million or 37.8 percent in third quarter 2024 compared to third quarter 2023. The increase was primarily driven by an $8.1 million increase in Sunseeker Resort operating expenses consisting of $1.8 million cost of sales (primarily food and beverage), $2.1 million of insurance expense, $0.9 million of property taxes, and other general and administrative expenses. Other operating expenses related to the airline increased by $5.0 million due primarily to crew travel, software licenses and support, and property taxes. These increases were offset in part by gains on the sale of flight equipment.

Previous wording

Special charges. During second quarter 2024, we recorded $18.1 million of special charges including $9.3 million of accelerated depreciation from the early retirement of 21 airframes through 2026 pursuant to a revised fleet plan and $10.8 million related to the ratification bonus on our new flight attendant collective bargaining agreement, which was offset by $2.0 million of net insurance recoveries related to Sunseeker Resort hurricane damages.

Current wording

Special charges. During third quarter 2024, we recorded $8.8 million of special charges including $4.2 million of accelerated depreciation from the early retirement of 21 airframes through 2026 pursuant to a revised fleet plan, $3.4 million of compensation expense from an organizational restructuring, and $1.1 million of damages from Hurricane Helene, net of insurance recoveries, related to Sunseeker Resort.

Previous wording

We recorded a $4.3 million income tax expense at an effective tax rate of 24.0 percent and a $27.9 million income tax expense at a 24.0 percent effective tax rate for the three months ended June 30, 2024 and 2023, respectively. The effective tax rate for the three months ended June 30, 2024 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and permanent tax differences.

Current wording

We recorded a $6.7 million income tax benefit at an effective tax rate of 15.3 percent and a $4.9 million income tax benefit at a 16.3 percent effective tax rate for the three months ended September 30, 2024 and 2023, respectively. The effective tax rate for the three months ended September 30, 2024 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and permanent tax differences.

Previous wording

Passenger revenue. For the six months ended June 30, 2024, passenger revenue decreased $77.6 million or 6.2 percent compared with the same period in 2023 on relatively flat capacity. The decrease in passenger revenue was primarily driven by an 8.0 percent decrease in average scheduled service base fare coupled with a 2.3 percent decrease in passengers flown. The lower base fare is attributable to weaker demand in off-peak periods.

Current wording

Passenger revenue. For the nine months ended September 30, 2024, passenger revenue decreased $104.9 million or 5.9 percent compared with the same period in 2023 on relatively flat capacity. The decrease in passenger revenue was primarily driven by an 8.5 percent decrease in average scheduled service base fare coupled with a 1.8 percent decrease in passengers flown. The lower base fare is attributable to industry overcapacity prevalent during 2024 and weaker demand in off-peak periods. We expect our Allegiant Extra product to increase ancillary air revenue as it is deployed in more of our aircraft. We ended the quarter with 39 aircraft fitted to the Allegiant Extra configuration and anticipate that it will continue to drive fare growth going forward.

Previous wording

Third party products revenue. Third party products revenue for the six months ended June 30, 2024 increased $15.6 million or 28.3 percent over the same period in 2023. The increase from 2023 is primarily the result of a 38.4 percent increase in the marketing component of co-brand credit card revenues and $4.7 million of revenue from a new travel insurance product implemented during first quarter 2024.

Current wording

Third party products revenue. Third party products revenue for the nine months ended September 30, 2024 increased $24.0 million or 28.0 percent over the same period in 2023. The increase from 2023 is primarily the result of a 35.0 percent increase in the marketing component of co-brand credit card revenues and $7.2 million of revenue from a new travel insurance product implemented during first quarter 2024. In addition, third party hotel revenues increased slightly by 3.3 percent from the prior year period despite a 12.9 percent decrease in room nights booked. Car rental revenue was relatively flat over the prior year period on a 2.8 percent decrease in rental car days sold.

Previous wording

Fixed fee contract revenue. Fixed fee contract revenue for the six months ended June 30, 2024 increased $10.7 million or 41.4 percent compared to the same period in 2023 on a 49.7 percent increase in fixed fee departures as a result of strong performance during March Madness and growth in corporate and military charters and other sports flying.

Current wording

Fixed fee contract revenue. Fixed fee contract revenue for the nine months ended September 30, 2024 increased $13.5 million or 31.0 percent compared to the same period in 2023 on a 30.7 percent increase in fixed fee departures as a result of strong performance during March Madness and growth in corporate and military charters and other sports flying.

Previous wording

Operating CASM, excluding fuel, airline special charges, and Sunseeker Resort activity. Operating CASM, excluding fuel, airline special charges and Sunseeker Resort activity, increased by 9.9 percent to 8.54 ¢ for the six months ended June 30, 2024 from 7.77 ¢ for the same period in 2023. The CASM-ex increase is primarily attributable to a 19.4 percent or $64.4 million increase in airline salaries and benefits expense (for the reasons described in the expense line item discussion below). This increase was on relatively flat capacity (an increase of 0.6 percent) as we continue to manage capacity to meet demand while navigating other constraints to airline growth.

Current wording

Operating CASM, excluding fuel, airline special charges, and Sunseeker Resort activity. Operating CASM, excluding fuel, airline special charges and Sunseeker Resort activity, increased by 8.1 percent to 8.65 ¢ for the nine months ended September 30, 2024 from 8.00 ¢ for the same period in 2023. The CASM-ex increase is primarily attributable to an 18.0 percent or $88.6 million increase in airline salaries and benefits expense (for the reasons described in the expense line item discussion below). This increase was on relatively flat capacity as we continue to incur significant labor costs for pilots trained to fly our Boeing 737 MAX aircraft while the aircraft deliveries have been delayed.

Previous wording

Salaries and benefits expense. Salaries and benefits expense increased $86.5 million, or 25.7 percent, for the six months ended June 30, 2024 compared to the same period in 2023. Higher salaries and benefits expense was primarily driven by a 10.2 percent increase in airline full-time equivalent employees (including a 25.5 percent increase in the number of pilots employed since June 30, 2023) and increased crew pay. Increased crew pay includes the impact of a $46.0 million accrual for pilot retention bonuses during the six months ended June 30, 2024, of which $34.2 million is incremental to what was accrued in the same period in 2023, and a new collective bargaining agreement with our flight attendants that includes wage increases effective April 2024. The accrued pilot retention bonus is payable after completion of a new collective bargaining agreement with this work group. The grand opening of Sunseeker Resort in December 2023 further drove the increase by adding nearly 900 Resort team members and an increase of $22.0 million in salaries and benefits expense during the six month period.

Current wording

Salaries and benefits expense. Salaries and benefits expense increased $118.8 million, or 23.8 percent, for the nine months ended September 30, 2024 compared to the same period in 2023. Higher salaries and benefits expense was primarily driven by a 4.5 percent increase in airline full-time equivalent employees (including a 21.9 percent increase in the number of pilots employed since September 30, 2023) and increased crew pay. Increased crew pay includes the impact of a $69.6 million accrual for pilot retention bonuses during the nine months ended September 30, 2024, of which $39.2 million is incremental to what was accrued in the same period in 2023 as the accruals did not commence until May 2023, and a new collective bargaining agreement with our flight attendants that includes wage increases effective April 2024. The accrued pilot retention bonus is payable after completion of a new collective bargaining agreement with this work group. The opening of Sunseeker Resort in December 2023 further drove the increase by adding nearly 600 Resort team members since September 30, 2023 and an increase of $30.2 million in Sunseeker salaries and benefits expense during the nine month period.

Previous wording

Aircraft fuel expense. Aircraft fuel expense decreased $12.0 million, or 3.4 percent, for the six months ended June 30, 2024 compared to the same period in 2023. This is primarily driven by a 3.9 percent decrease in average fuel cost per gallon. The decrease in fuel cost was partially offset by a 0.4 percent increase in fuel gallons consumed on a 0.6 percent increase in total available seat miles.

Current wording

Aircraft fuel expense. Aircraft fuel expense decreased $31.6 million, or 6.1 percent, for the nine months ended September 30, 2024 compared to the same period in 2023. This is primarily driven by a 6.6 percent decrease in average fuel cost per gallon. The decrease in fuel cost was partially offset by an 0.8 percent increase in fuel gallons consumed on a 0.9 percent increase in total available seat miles.

Previous wording

Sales and marketing expense. Sales and marketing expense for the six months ended June 30, 2024 increased $1.6 million or 2.8 percent compared to the same period in 2023, primarily driven by a year over year increase of $3.0 million in advertising and marketing for the Sunseeker Resort. These increases were offset in part by a reduction in credit card processing fees as a result of a 6.2 percent decrease in passenger revenue year-over-year and a fee paid to transition our co-brand credit card to a new payment network incurred during the 2023 period.

Current wording

Sales and marketing expense. Sales and marketing expense for the nine months ended September 30, 2024 decreased $2.0 million or 2.3 percent compared to the same period in 2023. Airline sales and marketing decreased $5.8 million, primarily driven by the discontinuation of a marketing agreement in 2024, a fee incurred in 2023 for transitioning our co-branded credit card to a new payment network, and a reduction in credit card processing fees, driven by a 5.9 percent decrease in passenger revenue year-over-year. These reductions were offset by a $3.8 million increase in sales and marketing expense at the Sunseeker Resort.

Previous wording

Other operating expense. Other expense for the six months ended June 30, 2024 increased by $18.8 million, or 30.1 percent year-over-year primarily due to an increase of $18.8 million related to Sunseeker Resort operations, which includes $6.0 million cost of sales (primarily food and beverage cost), $4.3 million of insurance expense, $1.6 million in property taxes, and other general and administrative expenses. The airline segment also saw increases in software licenses, training, and support related to our new IT systems, which were offset in part by gains on the sale of property and equipment.

Current wording

Other operating expense. Other expense for the nine months ended September 30, 2024 increased by $29.9 million, or 32.6 percent year-over-year primarily due to an increase of $26.9 million related to Sunseeker Resort operations, which includes $7.8 million cost of sales (primarily food and beverage cost), $6.4 million of insurance expense, $2.6 million in property taxes, and other general and administrative expenses. Other operating expenses related to the airline increased by $3.0 million due to increases in software licenses, training, and support related to our new IT systems, and crew travel, which were offset in part by gains on the sale of flight equipment.

Previous wording

Special charges. During the six months ended June 30, 2024, we recorded $31.2 million of special charges including $24.2 million of accelerated depreciation from the early retirement of 21 airframes through 2026 pursuant to a revised fleet plan and $10.8 million related to the ratification bonus on our new flight attendant collective bargaining agreement, which was offset by net insurance recoveries related to Sunseeker Resort hurricane damages of $3.8 million.

Current wording

Special charges. During the nine months ended September 30, 2024, we recorded $40.0 million of special charges including $28.4 million of accelerated depreciation from the early retirement of 21 airframes through 2026 pursuant to a revised fleet plan, $10.8 million related to the ratification bonus on our new flight attendant collective bargaining agreement, as well as $3.4 million of compensation costs related to an organizational restructuring of administrative personnel. These charges were offset by net insurance recoveries related to Sunseeker Resort hurricane damages of $2.6 million.

Previous wording

Interest expense, net of interest income and capitalized interest, for the six months ended June 30, 2024 decreased by $3.9 million, or 10.4 percent when compared to the same period in 2023. The decrease is primarily attributable to an $8.7 million increase in capitalized interest driven by increased pre-delivery deposits on aircraft and a $1.4 million increase in interest income, which were offset by a $6.2 million increase in interest expense on a year-over year increase of $58.5 million of debt outstanding and a 0.7 percentage point increase in weighted average variable interest rates.

Current wording

Interest expense, net of interest income and capitalized interest, increased by $1.3 million, or 2.6 percent, for the nine months ended September 30, 2024, compared to the same period in 2023. Interest expense increased by $6.1 million, primarily as the result of an increase in the average variable interest rate during the period. Capitalized interest increased $5.8 million as the result of an increase in capitalized interest of $21.2 million driven by increased pre-delivery deposits on aircraft, offset by a $15.5 million decrease in capitalized interest related to the Sunseeker Resort. Interest income decreased by $1.0 million as a result of lower average investment balances, which was offset in part by higher yields on investments compared to the same period in the prior year.

Previous wording

We recorded a $3.9 million income tax expense at an effective rate of 23.4 percent compared to a $46.1 million tax expense at a 24.2 percent effective tax rate for the six months ended June 30, 2024 and 2023, respectively. The 23.4 percent effective tax rate for the six months ended June 30, 2024 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences.

Current wording

We recorded a $2.7 million income tax benefit at an effective rate of 10.3 percent compared to a $41.3 million tax expense at a 25.7 percent effective tax rate for the nine months ended September 30, 2024 and 2023, respectively. The 10.3 percent effective tax rate for the nine months ended September 30, 2024 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences.

Previous wording

Cash, cash equivalents and investment securities (short-term and long-term) decreased slightly to $851.1 million as of June 30, 2024, from $870.7 million at December 31, 2023. Investment securities represent highly liquid marketable securities which are available-for-sale.

Current wording

Cash, cash equivalents and investment securities (short-term and long-term) decreased to $804.6 million as of September 30, 2024, from $870.7 million at December 31, 2023. Investment securities represent highly liquid marketable securities which are available-for-sale.

Previous wording

Our debt and finance lease obligations balance, without reduction for related issuance costs, decreased by $44.5 million from $2.28 billion as of December 31, 2023 to $2.24 billion as of June 30, 2024. Net debt (total debt less unrestricted cash, cash equivalents, and investments) as of June 30, 2024 was $1.37 billion, a decrease of $21.2 million from December 31, 2023.

Current wording

Our debt and finance lease obligations balance, without reduction for related issuance costs, decreased by $76.6 million from $2.28 billion as of December 31, 2023 to $2.21 billion as of September 30, 2024. Net debt (total debt less unrestricted cash, cash equivalents, and investments) as of September 30, 2024 was $1.38 billion, a decrease of $5.4 million from December 31, 2023.

Previous wording

During the six months ended June 30, 2024, we entered into credit agreements for up to $218.5 million which will be collateralized by new aircraft deliveries. These commitments, along with commitments existing prior to first quarter 2024, are expected to refinance on a long-term basis $121.0 million of our PDP loan balances which are presently classified as current maturities of long term debt. No draws have been made on these financing commitments to date as they will be funded when the aircraft to be pledged are delivered to us.

Current wording

During the nine months ended September 30, 2024, we entered into credit agreements for up to $218.5 million which will be collateralized by new aircraft deliveries. These commitments, along with commitments existing prior to first quarter 2024, are expected to refinance on a long-term basis $106.9 million of our PDP loan balances which are presently classified as current maturities of long term debt. We will draw on these financing commitments at the delivery of the respective aircraft as they will be funded when the aircraft to be pledged are delivered to us.